The Cash Contract
To eliminate the mortgage contingency the parties could execute a "cash contract" in which there is no reference to buyer financing and the mortgage clauses are deleted. Note that a "cash contract" does not require the buyer to pay all cash, it just means that the buyer is not entitled to the return of his deposit if he doesn't obtain a mortgage commitment.
Seller Financing: can make a property especially appealing to a buyer as there is no qualification process and the closing costs are usually less. The seller is entitled to act as the buyer's mortgage company and loan the buyer any part of the purchase price. The seller's attorney then prepares a note and a mortgage, which is recorded, in the same manner as a conventional loan. Some contracts require the seller to use a "conventional" mortgage. The seller should not use a conventional mortgage unless the seller is a bank. The seller should not use a form mortgage. The seller should use a mortgage specifically drafted for the needs of an individual acting as a lender. Your real estate attorney can provide you with a suitable one.
If the buyer subsequently fails to make the required payments, the Seller can foreclose the mortgage in the same manner as a conventional mortgage company and recover title to the property. The seller should be sure that the buyer pays enough cash to cover the costs of a foreclosure action plus nine months of carry. Sellers should note that if the buyer declares bankruptcy it does not prevent a foreclosure, it only delays it.
Assuming an existing mortgage: if the seller already has a mortgage on the property, the buyer might be able to assume it. In this case the buyer contacts the existing mortgage company which will state the conditions and cost of assuming the loan. The buyer will then execute an "assumption" which will be recorded and make the buyer liable on the note. The seller is usually relived of further liability on the note. The buyer should remember to add himself as a loss payee on the property insurance and delete the seller.
Subject to an existing mortgage: means the buyer purchases the property from the seller and does not pay off the seller's mortgage and does not assume it either. Many mistakenly believe this is illegal. The resulting status is as follows: the seller is still personally liable on the note, the mortgage still shows on the seller's credit, the mortgage is still a lien against the property, the lender has the option of declaring the note to be immediately due in full.
Wrap Around Mortgage: the existing mortgage remains and the seller lends the buyer an additional amount the total amount secured by a mortgage from the buyer to the seller. The buyer's entire payment is made to the seller, who makes the payment to the pre-existing mortgage. This protects the seller who is personally liable under the first mortgage. The buyer is at risk to the seller not paying the underlying mortgage. If the parties have not obtained the consent of the underlying mortgage to do a wrap around mortgager, then the underlying mortgages will probably have the right to declare that note immediately due in full.